India’s unemployment rate in August was 8.3 percent. This figure is higher than the 7 percent recorded in July. But it was better than the 9.2% in June and 11.8% in May 2021. Despite the variations from month to month, these are all very high unemployment rates.
In May 2019, when after much resistance, the government finally released the results of the Periodic Labor Force Survey (PLFS), most of the uproar concerned the historically high unemployment rate of 6.1% in 2017- 18 (July to June). It was at a 45-year high. Until then, India used to register an unemployment rate of around 3%. Today, an unemployment rate of 7-8% seems to be the norm and such levels don’t seem to matter. The unemployment rate is not a factor in policy making.
High and rising unemployment is obviously not a powerful policy tool in India. Between inflation and unemployment, the two economic indicators theoretically united by the Phillips curve, it is inflation that holds the political power.
Inflation affects almost the entire population. Equally important, high inflation rates can disrupt financial markets which, in turn, put pressure on regulators to control inflation. The unemployment rate does not have such a constituency.
Unemployment directly impacts only the unemployed, who count for little. An unemployment rate of 7 percent affects less than 3 percent of the population. Worse yet, society perceives unemployment as an individual shortcoming and not as the result of macroeconomic malaise. The victim suffers the ignominy, not the system. The unemployed are seen as undereducated, clumsy or not smart. Implicit in this thinking is the fallacious belief that if these people worked harder and were sharper, they could all find jobs.
If unemployment cannot be a political tool, employment can be one, and this potential manifests itself in the form of requests for job reservations. The lack of employment opportunities, of course, gives power to the reserves as a political tool. Lack of adequate jobs is an economic problem that deserves more analytical and political attention than the political attention it receives in India.
The unemployment rate is not the most important indicator of the labor market for a country like India. The unemployment rate is a measure of the economy’s inability to provide jobs only to those who are looking for work. But, in India, very often people don’t look for a job, thinking there isn’t one. Technically, this translates into a low labor market participation rate (LFPR). India’s LFPR is around 40 percent while the global rate is close to 60 percent. It is important that this belief in the futility of a job search is overcome by the explosive creation of new formal jobs of good quality. There are so few good-quality formal jobs that nothing less than explosive growth in their numbers will overcome the current otiosity.
In a country of more than a billion adults, there are less than 80 million salaried jobs. Where would the remaining 920 million go to find a job? More than half choose not to look for work. The rest are self-employed as farmers, day laborers and entrepreneurs of all kinds. For the farmer or the day laborer or the small entrepreneur, the status of unemployed or not looking for a job is dynamic and even vague. When jobs start to become scarce, does the day laborer find himself unemployed or does he leave the workforce? It is a state of mind that is a jumble of hope, effort and boredom. Seen from the angle of this often vague status, the interpretation of the unemployment rate is difficult.
Employment can be real if we don’t reduce its meaning to a laughably relaxed definition like the official system does. You are declared an employee if you have carried out an economic activity for only one hour during the last seven days.
A useful measure of the labor market for a country like India is the employment rate. This measures the proportion of the population over 14 who are employed. We use CMIE’s job definition which requires a person to be employed for a greater portion of the day to be eligible.
India’s record in creating jobs for its people has been catastrophic. In 2016-2017, only 42.8% of the working-age population was employed. This percentage fell to 41.7% in 2017-2018, then to 40.2% in 2018-2019, then to 39.5% in 2019-2020. In the year of the pandemic, it fell to 36.5%. He did not recover from this low level in the first five months of 2021-2022.
The number of employees was 408.9 million in 2019-2020. In August 2021, employment was much lower at 397.8 million. India still provides 9.2 million fewer jobs than before the pandemic. And employment continues to decline. It fell by nearly 2 million compared to 399.7 million in July 2021. A reverse migration is underway. People are moving from factories as manufacturing jobs decline to farms that provide shelter largely in the form of disguised unemployment. In August, even farms were unable to absorb excess labor from factories and offices. The workforce has shifted towards providing occasional services to the household sector and in the retail trade, presumably as delivery men.
With all due respect to all forms of work, it cannot be a nation’s desire to move people from high productivity and better jobs in manufacturing to low productivity jobs in agriculture. or as gardeners or security guards in the domestic sector. Employment opportunities need to expand in areas where labor is deployed to provide higher productivity for the business and higher returns to labor. This is not the direction we are seeing.
Much of the solution to this lack of adequate jobs lies in increased investment. To do this, the investment climate must be favorable to businesses and government interventions must shift from supporting supply to stimulating demand.
This column first appeared in the paper edition on September 18, 2021 under the title “Un travail à faire”. The author is Managing Director and CEO of the Center for Monitoring Indian Economy.